The institutional pathway towards a circular economy

The so-called circular economy has become one of the newest hypes, but the many applications of the concept also led to a wide diversity of the concept’s meanings. Within the scope of this research it is defined as “an economy that aims to reduce the input of primary resources and the output of waste by using energy efficient biological and technical feedback loops and renewable energy resources in order to decrease its impact on the earth, especially in regard to climate change and the loss of biodiversity.” Since the circular economy makes a business model from being sustainable, the concept is embraced by many governments. However, some researchers have suggested that the current institutional settings of these countries are ill-equipped for the transition towards a circular economy. As we will see, empiric support for this assumption is still lacking. This knowledge gap leads to the following question: What is the influence of institutional factors on the transition towards a circular economy? A mixed method design will be used to answer this question. Moreover, a quantitative regression analysis will be conducted to determine the influence of institutional arrangements on the level of circularity in a country. Qualitative interviews and observations were carried out in order to correctly interpret the quantitative results. In addition, the qualitative interviews were used to reflect on both the future of the circular economy concept and on the possible future institutional arrangements for promoting the transition towards a circular economy. To be able to say something about the influence of institutional factors on the transition towards a circular economy, it is important to measure the presence of such an economy. Within this research, the measurement was based on the scientific definition of circular economy. During the analysis this definition was also assessed. A principal components analysis proved that the three main elements of the circular economy: resource efficiency, energy efficiency, and sustainability cannot be seen as one empiric element. The results of the interviews underlined that these three elements are considered to be different things in the realm of politics. Consequently, the circular economy cannot be seen as an empirical construct. Instead, researchers could see it as an ideal type. A critical assessment of the different elements of the circular economy is necessary to ensure that the transition contributes to a more sustainable economy. Furthermore, it is argued that institutional arrangements are a crucial element of the transition towards a circular economy. Even though the regression analysis did not give any significant positive relationships for the influence of political institutions on the level of circularity within a country, the results of the interviews gave a strong reason to believe that institutional settings do indeed matter. Unfortunately, the results did not give a definite answer on the exact influence of institutional factors on the transition. A major problem with the conducted regression analysis is the way circularity was measured. The used indicators were strongly influenced by the historical developments of the different included countries. As we talk about a transition towards a circular economy, the historical scores on circularity are less interesting. Therefore, it is suggested that future research will use leading indicators to measure circularity. The results of this research led to a new conceptual model to study the influence of institutions on the circular economy. During this study, five institutional capacities of the government were taken into account: regulatory capacity, organizational capacity, resources, collaborative capacity, and learning capacity. The research’s results suggest that another kind of capacity can be added to this list: the government’s narrative capacity. To make the transition towards a circular economy, governments should actively promote the ideas behind the concept to multiple actors in society: businesses, consumers, and financial institutions. Moreover, politicians and other practitioners should think about the right mix of institutional arrangements that they can use to promote the CE among all these actors.